UPDATED: Google Only Making $15 Profit Per Nexus 7 Tablet Sold.

The new Nexus 7 tablet is certainly generating lots of buzz in the tech world, and with good reason. The powerful quad core tablet not only looks nice, but is also being sold for the ridiculously low price of $199, making it THE best tablet for the money. But with that low price tag comes an even lower price tag for Google, as they are reportedly only making around 15 dollars profit per tablet sold. Is it worth it for Google? How is it possible that Amazon and Apple generate so much more profit per device sold? **update at the bottom**

According to research company UBM TechInsights, the Nexus 7 costs $184 dollars to produce. That amount includes components and assembly of the tablet, making Google around 15 USD for every device sold. Amazon on the other hand, manages to make 46 dollars profit on every Kindle Fire sold, which is triple what Google makes on the Nexus 7. Even more impressive however is Apple, who rakes in a whopping 171 dollars for every iPad sold, which is 11 times more than what Google makes with their device. So with such a low profit margin, the question of “why do it” comes into play.

The obvious reasoning would appear to be that the Nexus 7 wasn’t created to generate profits, but instead to steal fire away from Amazon (Kindle Fire) and Nook tablets. If Google manages to steal market share from these two companies, they might have a fair chance of getting their tablet sales off the ground. Google is paying way more for hardware than Amazon and Barnes & Noble devices, which would not only provide consumers with a better experience, but a chance to bring Android tablets to the forefront in the minds of consumers. That strategy has been attempted by other companies, but with Google’s name directly behind the product, the strategy could pay off.

Two major features that make the Nexus 7 very dangerous for Amazon are the quad core chipset and the camera, which are 2 things the Kindle Fire doesn’t have at all, and with Google Books becoming more widely available, consumers who like reading ebooks will have a hard decision to make when choosing between the Kindle and the Nexus 7.

Amazon relies on purchased downloadable content via their App Store, which works well due to their monopoly on online books. Google will have lots of catching up to do with the Play Store if they want to accomplish the same. If Google can manage to do that, then and only then can they set their focus on the Apple and the iPad, which not only generates profit through iTunes and other downloadable content, but also from the device itself.

The tablet wars are far from over, and although Google has a lot of work to do, the Nexus 7 is a massive step in the right direction.

UPDATE: It now appears that Google is apparently pulling in around $50 per device sold according to new reports. That certainly is a pretty healthy profit margin!

Comments

Isn't that exactly what I wrote Matt, like literally in those words when it came to content? Where I disagree with you is the amount of people that care. When consumers walk in to a store to purchase a tablet, do you think the salesman won't use the superior hardware in the Nexus as a major selling point to sway consumers?

I used to work sales at Best Buy, and believe me when I say that it does matter to many. If they can get literally the same content on 2 devices for the same price, but one happens to have better hardware and Google's name behind it, it WILL make a difference. Google simply needs to make that possible first by cleaning up and optimizing the Play Store. Apple however has the best of both worlds. Content is naturally king, but they ALSO rely on profit margins. I'm sure the margins they make on the iPad certainly DO matter. If they didn't, Apple would knock the price of I pads WAY down. Why aren't they doing that if profit margins on device sales play no role?

Again..content is king. But if there's a way to have profit through content AND device sales, I'm sure you ll find that concept very interesting to multiple companies.

Why do people buy 4 wheel drive cars bro? Two wheel drive is often cheaper right? Who needs the extra power? Maybe some need that power to reach certain locations? Here's a thought: maybe some people need the "extra power" for games and full HD media? Different products, same principal.

It's not about profit margin on devices, it's about content sales and advertising revenue! Every person using an Android device results in more ad revenue for Google. This is the core of Android's business model. With the Nexus 7, they are also aiming at people who want to buy content such as movies and books to read on their tablet.

Which is why statements like this are SO out of touch: "Two major features that make the Nexus 7 very dangerous for Amazon are the quad core chipset and the camera, which are 2 things the Kindle Fire doesn’t have at all"

That's not "very dangerous" for Amazon. Average users (95% of the market) DO NOT CARE about quad core processors. In fact, they don't even know what they are! These people do not go into the store and say, "hmm I wanted that Kindle Fire, but damn that Nexus thing has TWO MOAR CORES!! GONNA BUY THAT!" It's all about the content that is available, and right now the general public knows that Amazon sells a fuckton of books, but they are not as aware of Google's content catalog.

@Jack - For the Kindle fire I get it, but with the iPad I don't. They also use high quality components for the iPad, and to make THAT much money per device is just crazy. They must really be overpricing it :-D

@Jon - Totally forgot about that! Even more awesomeness Google is handing out!

"How is it possible that Amazon and Apple generate so much more profit per device sold?"

Say what?! Have you seen the difference in the components between the Fire and the Nexus 7? And have you seen the difference in the cost between the iPad and the Nexus 7?

Now if you want to simply ask whether it's worth it for Google, that's another matter all together. I'm sure it's worth it even if they just break even since they can make money from media sold in the Play Store. And possibly jump start the tablet market - although I'm not sure about that. One of the biggest dings Android gets for tablets is the lack of tablet optimized apps. And since the Nexus 7 is not "forcing" a tablet UI, there is no incentive for app developers to start using "Fragments" since the native scaling of Android will probably make most apps look great at 7".

I think the bigger question is whether it serves Asus to be selling the tablet this cheap. How much money is Asus making since they are probably not getting any residual income once the tablet's sold.